PM tells China world is watching

By Michelle Grattan and John Garnaut

KEVIN Rudd has increased Australia's pressure on the Chinese Government over the Stern Hu affair by saying that foreign countries and corporations will be closely watching its actions.

As the China Daily claimed that Rio Tinto had bribed executives from the country's 16 major steel mills, Mr Rudd reminded "our Chinese friends" that China had "significant economic interests at stake" in its relationship with Australia and other commercial partners around the world.

"A range of foreign governments and corporations will be watching this case with interest … and they'll be drawing their own conclusions about how it is conducted. It is in all of our interests to have this matter resolved," the Prime Minister said at a joint news conference with former US vice-president Al Gore.

Meanwhile, the Chinese Government has moved to reassure that relations with Australia will not be affected by the Hu case, in which Australia has not been able to get detailed information about what the senior Rio Tinto executive, accused of espionage and bribery, has allegedly done.

Commerce ministry spokesman Yao Jian said in Beijing: "China and Australia are very important trading partners and have good co-operation in areas including raw materials, free-trade talks and agriculture. I think these relations will definitely not be affected by an individual case."

Mr Yao also said the Rio Tinto case would not harm China's "trade environment or foreign investment environment".

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China's apparent effort to take control of the iron ore market by arresting mining and steel company executives has backfired, with the spot market price of iron ore rising 10 per cent in the week since news broke last Wednesday.

China's vast and fragmented steel industry is reeling on daily news reports in the Chinese media of more arrests, investigations and allegations of corrupt collusion between Rio Tinto and leading steel mills.

The China Daily yesterday said: "Executives from all 16 Chinese steel mills participating in iron ore price talks this year have been bribed by Rio Tinto employees, an insider claimed Tuesday." A report in the 21st Century Business Herald claimed officials were considering depriving 20 iron ore traders and steel mills of their iron ore import licences.

Mr Rudd revealed Australian officials had made 20 representations in Beijing and Shanghai in support of Mr Hu.

"We in our further engagements with the Chinese are seeking to explore further bases as to why this particular action has been taken in relation to Mr Hu," he said.

The Chinese Government has said Mr Hu and three Rio Tinto Chinese colleagues caused large economic losses to China by bribing steel mills and stealing state secrets, but it has provided no evidence.

Many industry analysts and executives in China who normally speak freely are now reluctant to answer media calls, amid uncertainty as to where the investigation will lead.

Industry analysts say the crackdown — whatever the motivation — will widen and result in serious penalties.

"I think a lot of people will be put in jail," said Xu Zhongbo, chief executive of Beijing Metal Consulting.